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Estate Planning Blog

Wednesday, December 25, 2013

The Basics of Conservatorships

The Basics of Conservatorships

Sometimes, bad things happen to good people. A tragic accident. A sudden, devastating illness. Have you ever wondered what would happen if a loved one became incapacitated and unable to take care of himself? While many associate incapacity with a comatose state, an individual, while technically functioning, may be considered incapacitated if he cannot communicate through speech or gestures and is unable sign a document, even with a mark. In some cases, an individual may have no trouble communicating, but may not be able to fully appreciate the consequences of their decisions and hence may be deemed to lack capacity. With proper incapacity planning which includes important legal documents such as a durable power of attorney, healthcare proxy and living will, the individuals named in such documents are empowered to make necessary financial and medial decisions on behalf of the incapacitated person without obtaining additional legal authorization.  Without proper incapacity planning documents, even a spouse or adult child cannot make financial and healthcare decisions on behalf of an incapacitated individual.  In such cases, a conservatorship (or guardianship) proceeding is necessary so that loved ones are able to provide for their financial and medical healthcare needs.

A conservatorship is a court proceeding where a judge appoints a responsible individual to take care of the adult in question and manage his or her finances and make medical decisions. The court appointed conservator will take over the care of the conservatee (disabled adult).  When appropriate, the court may designate an individual “conservator of the estate” to handle the disabled person’s financial needs and another person “conservator of the person” to manage his healthcare needs. One person can also serve as both. If you are planning to serve as someone’s financial conservator, be prepared to possibly post a bond that serves as a safeguard for the conservatee’s estate. Individual states have their own guidelines for conservators, so check your local rules for more information.  

To minimize the incidence of mismanagement or fraud, the court holds the conservator legally responsible for providing it with regular reports, called an accounting. Additionally, the conservator may not be able to make any major life or medical decisions without the court’s approval and consent. For example, if you have been named the conservator for a relative, you may not be able to sell his or her house without the approval of the court.

The best safeguard to avoid going through court to get a conservatorship, however, would be to establish a durable financial power of attorney, a power of attorney for healthcare, each authorizing a family member or trusted individual to act on your behalf in case of incapacity.  While your agents have a legal obligation to act in your best interest they won’t have to post an expensive bond either.  Make sure the power of attorney clearly states that it will be effective even if the principal becomes incapacitated.


Monday, December 16, 2013

Spendthrift Trusts

Spendthrift Trusts

Unfortunately, not everyone in the world is responsible with money. Even those who are moneywise can run into bad luck in life which could cause them financial hardship. So when planning your estate, you should think twice about leaving a large sum of money to someone who can’t handle it. For those beneficiaries for whom you have concerns, a spendthrift trust may be an ideal solution.

If a person who is “bad with money”, or who is going through a rough time, gets a large inheritance, odds are that the inheritance will be gone in a matter of a few months or a year or two, with very little to show for it. A spendthrift trust is a trust that is designed to limit a beneficiary’s ability to waste the principal of a trust. The beneficiary of a spendthrift trust is a person who can’t handle money, or is addicted to drugs, alcohol, or another negative behavior. A spendthrift trust could even be used for someone in a destructive relationship.

In a spendthrift trust, a sum of money is set aside in a trust account. The beneficiary is never the trustee of a spendthrift trust. Instead, the trustee can be another family member, a family friend, or even a corporate trustee like a bank. The trustee will spend the money for the beneficiary’s needs or could make payments directly to the beneficiary, as the trust document allows. However, the beneficiary has no right to spend the principal of the trust. The beneficiary also doesn’t have the legal right to pledge the trust as security for a loan.

In some spendthrift trusts, the trustee could have the power to cut off benefits to a beneficiary who becomes self-destructive, such as with the use of drugs or alcohol. The money could then be accumulated for the beneficiary’s use later, or it could be paid to another beneficiary. Another option would be to give the trustee the option to only make payments on behalf of a beneficiary who has become self-destructive, but to withhold cash from that beneficiary.

Spendthrift trusts are a great tool to help potential beneficiaries who cannot handle money for various reasons. However, they aren’t perfect. They may be too strict in situations where the beneficiary may have a legitimate need for more money. If the spendthrift trust isn’t strict enough about what money is allowed to be spent on, that leaves a lot of control in the trustee’s hands, and he may find himself in the difficult position of standing between an erratic beneficiary and his or her money.

If you’re concerned about a particular beneficiary and his or her ability to manage money, be sure to consult with a qualified trust attorney to evaluate whether a spendthrift trust would be an effective tool for your estate plan.


Thursday, December 5, 2013

Probate vs. Non-Probate Property

Planning Pitfall: Probate vs. Non-Probate Property

Transfer of property at death can be rather complex.  Many are under the impression that instructions provided in a valid will are sufficient to transfer their assets to the individuals named in the will.   However, there are a myriad of rules that affect how different types of assets transfer to heirs and beneficiaries, often in direct contradiction of what may be clearly stated in one’s will.

The legal process of administering property owned by someone who has passed away with a will is called probate.  Prior to his passing, a deceased person, or decedent, usually names an executor to oversee the process by which his wishes, outlined in his Will, are to be carried out. Probate property, generally consists of everything in a decedent’s estate that was directly in his name. For example, a house, vehicle, monies, stocks or any other asset in the decedent’s name is probate property. Any real or personal property that was in the decedent’s name can be defined as probate property.  

The difference between non-probate property and probate centers around whose name is listed as owner. Non-probate property consists of property that lists both the decedent and another as the joint owner (with right of survivorship) or where someone else has already been designated as a beneficiary, such as life insurance or a retirement account.  In these cases, the joint owners and designated beneficiaries supersede conflicting instructions in one’s will. Other examples of non-probate property include property owned by trusts, which also have beneficiaries designated. At the decedent’s passing, the non-probate items pass automatically to whoever is the joint owner or designated beneficiary.

Why do you need to know the difference? Simply put, the categories of probate and non-probate property will have a serious effect on how plan your estate.  If you own property jointly with right of survivorship with another individual, that individual will inherit your share, regardless of what it states in your will.  Estate and probate law can be different from state-to-state, so it’s best to have an attorney handle your estate plan and property ownership records to ensure that your assets go to the intended beneficiaries.


Monday, November 25, 2013

Estate Planning for Unmarried Couples

Estate Planning for Unmarried Couples

Estate planning is important for everyone. We simply don’t know when something tragic could happen such as sudden death or an accident that could leave us incapacitated. With proper planning, families who are dealing with the unexpected experience fewer headaches and less expense associated with managing affairs after incapacity or administering an estate after death.

If a person fails to do any planning and becomes involved in a debilitating accident or passes away, each state has laws that govern who will inherit assets, become guardians of minor children, make medical decisions for an incapacitated person, dispose of a person’s remains, visit the person in the hospital, and more. In some states, the spouse and any children are given top priority for inheritance rights. In the case of incapacity, spouses are normally granted guardianship over incapacitated spouse, though this requires a lengthy and expensive guardianship proceeding.

In today’s world, increasing numbers of couples are choosing to spend their lives together but aren’t getting married, either because they aren’t allowed to under the laws of their state, such as in the case of gay and lesbian couples, or simply because they choose not to. However, most states don’t recognize unmarried partners as spouses. In order to be given legal rights that married couples receive automatically, unmarried couples need to do special planning in order to protect each other.

In general, unmarried individuals need three basic documents to ensure their rights are protected:

  1. A Will – A will tells who should inherit your property when you pass away, who you want your executor to be, and who will become guardians of any minor children. These issues are all especially important for unmarried individuals. In most states, an unmarried partner does not have inheritance rights, so any property owned by his or her deceased partner would go to other family members. Also, in the case of many gay and lesbian couples, the living partner is not necessarily the biological or adoptive parent of any minor children, which could lead to custody disputes in an already very difficult time.  Therefore, it’s critical to nominate guardians for minor children.
     
  2. A power of attorney – A power of attorney (for financial matters) dictates who is authorized to manage your financial affairs in the event you become incapacitated. Otherwise, it can be very difficult or impossible for the non-disabled partner to manage the disabled partner’s affairs without going through a lengthy guardianship or conservatorship proceeding.
     
  3. Advance healthcare directives – A power of attorney for healthcare, informs caregivers as to who is responsible for making healthcare decisions for someone in the event that a person cannot make them for himself, such as in the event of a serious accident or a condition like dementia.  Another document, called a living will, provides directions on life support issues.

Estate planning is undoubtedly more important for unmarried couples than those who are married, since there aren’t built-in protections in the law to protect them and their loved ones.  It’s imperative that unmarried couples establish proper planning to avoid undue hardship, expense and aggravation.


Friday, November 15, 2013

Moving to Another State and How it Affects Estate Planning

Moving to Another State and How it Affects Estate Planning

In general, wills or living trusts that are valid in one state should be valid in all states. However, if you’ve recently moved, it’s highly recommended that you consult an estate planning attorney in your new state. This is because states can have very different laws regarding all aspects of estate planning. For example, some states may allow you to disinherit a spouse if certain language is used, while other states may not allow it.

Another event that can cause problems with moving and estate planning is moving from a community property state to a common law state or vice versa. In community property states, all property earned or acquired during marriage is generally owned in equal halves by each spouse, with some exceptions, such as any property received by only one of them through gift or inheritance. The property that is considered community property includes income, anything acquired with income during the marriage, and any separate property that is transformed into community property. Separate property includes anything owned by either spouse before marriage, property received by only one spouse by gift or inheritance, and any property earned by one spouse after permanent separation. One spouse is not required in community property states to leave his or her half of the community property to another spouse, although many do.

In common law states, property acquired during a marriage is not automatically owned by both spouses. In common law states, the spouse who earns money and acquires property owns it by himself or herself, unless he or she chooses to share it with his or her spouse. Common law states usually have rules to protect a surviving spouse from being disinherited.

Whether a couple lives in a community property state or a common law state is important for estate planning purposes, because that can directly affect what each spouse is considered to own at death.

If a couple moves from a common law state to a community property state, there are different rules about what happens depending on where you move. If you move from a common law state to California, Washington, Idaho or Wisconsin, the property you bring into the state becomes community property. If you move to another community property state (Alaska, Arizona, New Mexico, Nevada, or Texas), your property ownership won’t automatically change. If a couple moves from a community property state to a common law state, each spouse retains a one-half interest in property accumulated during marriage while they lived in the community property state.

As you can see, the laws of different states vary significantly with respect to incapacity planning, estate planning and inheritance rights. Therefore, it’s important to contact an estate planning attorney in your new area, especially if you are moving from a community property state to a common law state, or vice versa.


Tuesday, November 5, 2013

The ABCs of Ademption

What happens if you are bequeathed a car that no longer exists?  The ABCs of Ademption

If you’re involved in settling a loved one’s estate, you may come across the curious word “ademption”. Ademption describes what happens when something designated in a will no longer exists. Say, for example, your uncle dies and leaves for you in his will an old-school Harley Davidson motorcycle. However, if your uncle crashed the motorcycle two years before the will was probated and there’s nothing to leave, then that gift would be considered adeemed and you would receive nothing. This is why certain wills include language that says, “if owned by me at my death.”

However, it is important to realize that certain items cannot be adeemed. For instance, money. If your uncle died and left $7,000 for you in his will, but left a zero dollar balance in his accounts, your gift of cash would not be adeemed. Instead, the estate would be responsible for satisfying that gift, say for example, through the sale of the house or other such property.

There are exceptions to ademption, however. If the property leaves the estate after the person who wrote the will has been declared incompetent, ademption is waived.  Other states make exceptions for cases where interest in a corporation that no longer exists because the shares were exchanged with that of an acquiring company.  Your state may tackle ademption differently based on its laws, so please consult a qualified real estate or probate lawyer if you want to learn more about ademption and its exceptions.
 


Friday, October 25, 2013

Remarried? Protect Your Children With Proper Planning

Remarried? Protect Your Children With Proper Planning

If you are married for the first time and are working on your estate plan, the decisions about where the assets go are usually easy. Most parents in that situation want their entire estate to go to the surviving spouse, and upon the death of the surviving spouse, equally to their children. There may be difficult decisions about who will serve as guardians of the children or trustees over the children’s property, but typically it’s easy to decide where the property will go.

However, in today’s society, there are ever-increasing numbers of blended families. There may be children from several marriages involved, making estate planning more complex.  Couples may bring an unequal number of children into the marriage, as well as unequal assets. A spouse may want to ensure that his or her spouse is provided for at death, but may be afraid to leave everything to that spouse out of fear that at the death of the second spouse, that spouse will leave everything to his or her biological children.

Planning can also be complicated when a couple gets married and either of them brings very young children into the marriage. The non-biological parent may raise those children, but unless formally adopted, for estate planning purposes, they are not considered the children of the non-biological parent. Therefore, if that parent dies without a will, the children will not inherit from the stepparent.

There are many options for estate planning for blended families that will treat everyone fairly. First, it’s imperative that parents of blended families have a will in place. If they don’t, it’s almost inevitable that someone will be treated unfairly. Also, it’s tempting for parents of blended families to create wills in which half of everything is left to the husband’s children and half is left to the wife’s children. However, as explained earlier, this approach can also lead to problems.  Moreover, it’s not at all uncommon for a surviving spouse to change his or her will at the death of the first spouse and cut the stepchildren out of the estate plan.

There are two options often recommended for blended families when doing estate planning. The first is to use a trust. Under this plan, all family assets are usually held in trust. Upon the death of the first spouse, the surviving spouse has the right to use the assets in the trust for support, with certain limits, such as rights to income or limited use of the trust principal for living expenses. However, the surviving spouse will not be able to change the beneficiaries of the trust, and hence stepchildren could not be disinherited. A second option is for a certain amount of money to be left to children at the death of the first spouse. In that situation, the children will not have to wait for the death of the stepparent in order to inherit. This works well in situations when the children are mature adults and there is sufficient money for the surviving spouse to support herself without relying on the extra funds that are inherited by the children.  One way to accomplish this is through a life insurance policy payable to the children.

Estate planning with blended families can be complex and each situation is unique. It’s important to keep the lines of communication open and to be aware that it can be a sticky situation for many families. However, with proper planning, many issues that could arise on the death of a stepparent can be avoided completely.
 


Tuesday, October 15, 2013

Guardianships & Conservatorships

Guardianships & Conservatorships and How to Avoid Them

If a person becomes mentally or physically handicapped to a point where they can no longer make rational decisions about their person or their finances, their loved ones may consider a guardianship or a conservatorship whereby a guardian would make decisions concerning the physical person of the disabled individual, and conservators make decisions about the finances.

Typically, a loved one who is seeking a guardianship or a conservatorship will petition the appropriate court to be appointed guardian and/or conservator. The court will most likely require a medical doctor to make an examination of the disabled individual, also referred to as the ward, and appoint an attorney to represent the ward’s interests. The court will then typically hold a hearing to determine whether a guardianship and/or conservatorship should be established. If so, the ward would no longer have the ability to make his or her own medical or financial decisions.  The guardian and/or conservator usually must file annual reports on the status of the ward and his finances.

Guardianships and conservatorships can be an expensive legal process, and in many cases they are not necessary or could be avoided with a little advance planning. One way is with a financial power of attorney, and advance directives for healthcare such as living wills and durable powers of attorney for healthcare. With those documents, a mentally competent adult can appoint one or more individuals to handle his or her finances and healthcare decisions in the event that he or she can no longer take care of those things. A living trust is also a good way to allow someone to handle your financial affairs – you can create the trust while you are alive, and if you become incompetent someone else can manage your property on your behalf.

In addition to establishing durable powers of attorney and advanced healthcare directives, it is often beneficial to apply for representative payee status for government benefits. If a person gets VA benefits, Social Security or Supplemental Security Income, the Social Security Administration or the Veterans’ Administration can appoint a representative payee for the benefits without requiring a conservatorship. This can be especially helpful in situations in which the ward owns no assets and the only income is from Social Security or the VA.

When a loved one becomes mentally or physically handicapped to the point of no longer being able to take care of his or her own affairs, it can be tough for loved ones to know what to do. Fortunately, the law provides many options for people in this situation.  
 


Friday, October 4, 2013

Gun Trusts

Gun Trusts: Targeted Estate Planning

If you have a gun collection, your estate plan may be missing the mark if it fails to include a specially drafted gun trust. The typical estate plan provides for tax saving strategies, probate avoidance and beneficiary designation of various assets. However, some assets pose additional issues that must be carefully addressed to avoid unintended consequences in the future. Firearms, in particular, are regulated under federal and state laws and demand careful attention from your estate planning attorney.

Your gun collection may include weapons used for sport, self-defense or investment purposes. America’s long history with firearms means your collection may include family heirlooms that have been passed down from generation to generation.

Unlike simple bank account, real property or vehicle ownership changes, transfers of many firearms and accessories are restricted and subject to very specific requirements. For example, under Title II of the National Firearms Act (NFA), the transfer of short-barreled shotguns and rifles, silencers, automatic weapons and certain other “destructive devices” require the approval of your local Chief Law Enforcement Officer (CLEO) and a federal tax stamp. To keep your gun collection in your family, you must ensure that all transfers comply with the National Firearms Act, as well as state laws where you and your beneficiaries reside.

So how do you ensure your firearms seamlessly transfer to your loved ones after you pass on?

By establishing a revocable living “gun trust,” which holds only your firearm collection, you can retain ownership and control of your collection during your lifetime while providing for the disposition of your guns to your intended beneficiaries. During your lifetime, you remain the trustee and beneficiary of the gun trust, and appoint a successor trustee and lifetime and remainder beneficiaries. Because the trust is revocable, you are free to make changes or revoke it at any time.

As with most living trusts, a gun trust enables you to provide detailed instructions regarding the disposition of your assets upon your death. But given the unique challenges associated with transferring firearm ownership, your gun trust is most valuable in helping expedite the transfer of a firearm that is restricted under the National Firearms Act. If you use a gun trust to own and transfer Title II firearms, you are not required to obtain the approval of your local CLEO; the transfer application may be sent directly to the Bureau of Alcohol, Tobacco and Firearms.

NFA-restricted firearms are not permitted to be transported or handled by any other individual unless the registered owner is present – which can present a problem if the registered owner is deceased. However, when owned by a properly drafted gun trust, these weapons may be legally possessed by the trustee, and any beneficiary may use the firearm under the authority of, or in the presence of, the trustee. This greatly simplifies and expedites the transfer, and saves your beneficiaries from any unintended violations of the National Firearms Act – which can result in steep fines, prison, and forfeiture of all rights to possess or own firearms in the future.

Gun dealers often make trust forms available, but these boilerplate documents typically fail to specifically address the ownership of firearms. A properly drafted gun trust will include guidance or limitations for the successor trustee, to ensure he or she does not inadvertently commit a felony when owning, using or transferring the weapons.
 


Wednesday, September 25, 2013

Charitable Giving

Charitable Giving

Many people give to charity during their lives, but unfortunately too few Americans take advantage of the benefits of incorporating charitable giving into their estate plans. By planning ahead, you can save on income and estate taxes, provide a meaningful contribution to the charity of your choice, and even guarantee a steady stream of income throughout your lifetime.

Those who do plan to leave a gift to charity upon their death typically do so by making a simple bequest in a will. However, there are a variety of estate planning tools designed to maximize the benefits of a gift to both the charity and the donor. Donors and their heirs may be better served by incorporating deferred gifts or split-interest gifts, which afford both estate tax and income tax deductions, although for less than the full value of the asset donated.

One of the most common tools is the Charitable Remainder Trust (CRT), which provides the donor or other designated beneficiary the ability to receive income for his or her lifetime, or for a set period of years. At death, or the conclusion of the set period, the “remainder interest” held in the trust is transferred to the charity. The CRT affords the donor a tax deduction based on the calculated remainder interest that will be left to charity. This remainder interest is calculated according to the terms of the trust and the Applicable Federal Rate published monthly by the IRS.

The Charitable Lead Trust (CLT) follows the same basic principle, in reverse. With a CLT, the charity receives the income during the donor’s lifetime, with the remainder interest transferring to the donor’s heirs upon his or her death.

To qualify for tax benefits, both CRTs and CLTs must be established as:

  • A Charitable Remainder Annuity Trust (CRAT) or a Charitable Lead Annuity Trust (CLAT), wherein the income is established at the beginning, as a fixed amount, with no option to make further additions to the trust; or
  • A unitrust which recalculates income as a pre-set percentage of trust assets on an annual basis; which would be either a Charitable Remainder Unitrust (CRUT) or a Charitable Remainder Annuity Trust (CRAT).

Another variation is the Net Income Charitable Remainder Unitrust, which provides more flexible payment options for the donor. One advantage to this type of trust is that a shortfall in income one year can be made up the following year.

The Charitable Gift Annuity (CGA) enables the donor to buy an annuity, directly from the charity, which provides guaranteed fixed payments over the donor’s lifetime. As with all annuities, the amount of income provided depends on the donor’s age when the annuity is purchased. The CGA gives donors an immediate income tax deduction, the value of which can be carried forward for up to five years to maximize tax savings.

IRA contributions are also an option through 2011 for donors who are at least 70½ years of age. Donors who meet the age requirement can donate funds in an Individual Retirement Account (IRA) to charity via a charitable IRA rollover or qualified charitable distribution. The amount of the donation can include the donors’ required minimum distribution (RMD), but may not exceed $100,000. The contribution must be made directly by the trustee of the IRA.

With several ways to incorporate charitable giving into your estate plan, it’s important that you carefully consider the benefits and consequences, taking into account your assets, income and desired tax benefits. A qualified estate planning attorney and financial advisor can help you determine the best arrangement which will most benefit you and your charity of choice.
 


Monday, September 16, 2013

A Living Will or Health Care Power of Attorney?

A Living Will or Health Care Power of Attorney? Or Do I Need Both?

Many people are confused by these two important estate planning documents. It’s important to understand the functions of each and ensure you are fully protected by incorporating both of these documents into your overall estate plan.

A “living will,” often called an advance health care directive, is a legal document setting forth your wishes for end-of-life medical care, in the event you are unable to communicate your wishes yourself. The safest way to ensure that your own wishes will determine your future medical care is to execute an advance directive stating what your wishes are. In some states, the advance directive is only operative if you are diagnosed with a terminal condition and life-sustaining treatment merely artificially prolongs the process of dying, or if you are in a persistent vegetative state with no hope of recovery.

A durable power of attorney for health care, also referred to as a healthcare proxy, is a document in which you name another person to serve as your health care agent. This person is authorized to speak on your behalf in order to consent to – or refuse – medical treatment if your doctor determines that you are unable to make those decisions for yourself. A durable power of attorney for health care can be operative at any time you designate, not just when your condition is terminal.

For maximum protection, it is strongly recommended that you have both a living will and a durable power of attorney for health care. The power of attorney affords you flexibility, with an agent who can express your wishes and respond accordingly to any changes in your medical condition. Your agent should base his or her decisions on any written wishes you have provided, as well as familiarity with you. The advance directive is necessary to guide health care providers in the event your agent is unavailable. If your agent’s decisions are ever challenged, the advance directive can also serve as evidence that your agent is acting in good faith and in accordance with your wishes.  


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